Emerging market currencies: 2009 all over again?

Emerging market currencies, which have held up relatively well until recently, have come under significant pressure this month as euro-zone uncertainties linger. Much worse could be in store, notes a currency strategist at Brown Brothers Harriman.

In fact, the same EM currencies that were battered in the 2008-2009 selloff are likely to be the same ones feeling the most heat this time around, including the Polish zloty USDPLN and the Hungarian forint USDHUF, which both depreciated roughly 40% at the time, Win Thin, global head of emerging markets strategy at Brown Brothers Harriman, said in his commentary.

So far this month, the U.S. dollar has gained about 14% against both the zloty and forint, according to FactSet.

Other usual victims include the Turkish lira USDTRY, the Mexican peso USDMXN, and the Korean won USDKRW, which all lost in excess of 30% back in the 2008-2009 period. In September, the greenback has strengthened 6% against the lira, 11% against the peso and 8% versus the won.

“The price action this past month simply underscores the fact that no matter how good emerging market fundamentals are, there is no decoupling to be had between emerging market and developed market,” Thin said.

He also noted that much like in 2008-2009, during the U.S. financial crisis, the sell-off was not triggered by any problems within the emerging market but from negative developments in the developed market. This connection is ironic, he says since growth prospects and fundamentals in many emerging markets have outpaced their industrialized counterparts.

– Sue Chang

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